At first glance, Hudson's Bay Company (NASDAQOTH:HBAYF) may look like the next Sears Holdings (NASDAQOTH:SHLDQ) -- in other words, a stock to be avoided at all costs.

Both iconic department store giants have touted their vast real-estate portfolios when appealing to investors. However, neither one has adapted well to the fast-changing retail landscape. As a result, Hudson's Bay and Sears have both been burning substantial sums of cash recently, and shareholders haven't been able to profit from sales of valuable assets.

HBAYF Free Cash Flow (TTM) Chart

Hudson's Bay Company Free Cash Flow (TTM), data by YCharts. TTM = trailing 12 months.

Yet while Sears has already sold most of its valuable assets to cover operating losses, Hudson's Bay still owns a valuable trove of real estate. Furthermore, Hudson's Bay has a new CEO -- Helena Foulkes -- who seems to be moving decisively to fix the business. With Hudson's Bay stock still trading at a rock-bottom price, I bought shares of this intriguing turnaround candidate last week.

Parts of the business are performing well

An important part of the investment case for Hudson's Bay is that some of its retail nameplates are quite successful. Whereas both of Sears Holdings' retail subsidiaries have been posting massive comp sales declines in recent years, Hudson's Bay has a mix of good and bad divisions.

On the plus side, the Hudson's Bay chain has won the department store wars in Canada. Thanks in part to the downfall of Sears Canada, one of its last major rivals, Hudson's Bay has posted comp sales growth for 31 consecutive quarters. Furthermore, the Saks Fifth Avenue luxury chain achieved comp sales increases in the last three quarters of fiscal 2017 -- and its comp sales growth accelerated to 6% in the first quarter of 2018.

The exterior of the Saks Fifth Avenue flagship in Manhattan

Saks Fifth Avenue is one of Hudson's Bay's successful divisions. Image source: Saks Fifth Avenue.

On the other hand, Hudson Bay's off-price operations have been posting big sales declines (and presumably also big earnings declines) due to strategic missteps. The Lord & Taylor chain has been in long-term decline in the U.S. Finally, Hudson's Bay's aggressive expansion into Europe hasn't paid off, due in part to weak retail sales there and stiff competition.

Foulkes is starting to fix the problem spots

The good news for investors is that while Foulkes took the helm just six months ago, she has already made some tough decisions that should improve profitability.

First, Hudson's Bay sold its Gilt flash-sale subsidiary -- a perennial money-loser -- to Rue La La. While Rue La La paid a fraction of the $250 million Hudson's Bay spent to acquire Gilt in 2016, Hudson's Bay was lucky to get anything. It will save around $10 million a year just from getting rid of Gilt, while its off-price management team will be able to focus on the more-promising Saks OFF 5TH chain.

Second, the company announced in June that it will close about 10 of its 48 Lord & Taylor stores, mostly in early 2019. These locations are all running at breakeven or worse, so closing them will improve profitability -- especially if some of their sales are transferred to nearby Lord & Taylor stores or the brand's e-commerce site.

Third, Hudson's Bay is in talks to sell a roughly 50% interest in its European division -- which operates the Galeria Kaufhof chain -- to Signa Holding, owner of Kaufhof's biggest competitor. This merger could boost profitability of the combined business, while selling the joint venture interest would allow Hudson's Bay to pay down debt.

The debt pile could shrink dramatically -- and soon

Last month, Hudson's Bay reminded investors that there is no guarantee it will complete a deal with Signa. However, the agreement being discussed would involve the joint venture taking on nearly $1 billion of Hudson Bay's debt, plus an additional cash payment of more than $1 billion to Hudson's Bay, according to The Wall Street Journal (subscription required).

Considering that Hudson's Bay ended the first quarter with about $3.2 billion of net debt, selling half of the European business could have a transformative impact on its balance sheet.

Furthermore, this isn't the only major cash-raising deal on the table. Hudson's Bay has agreed to sell Lord & Taylor's Manhattan flagship store to an affiliate of WeWork for $850 million. It received a $75 million deposit when the deal was signed last year and recently received another $25 million deposit. The deal is set to close in late 2018 or early 2019, by which point Hudson's Bay will have received the remaining $750 million.

Hudson's Bay is also negotiating a potential sale-leaseback of its Vancouver flagship store for more than $500 million. A joint venture with RioCan owns the property, and Hudson's Bay would be entitled to 80% of the proceeds, some of which would have to be used to pay down a mortgage on the property.

The company will also raise some cash from selling the inventory and real estate of stores it is closing in the coming year. If all goes according to plan, Hudson's Bay could eliminate the vast majority of its debt over the next year or so.

The stock is cheap

Lower capex and other changes that Hudson's Bay has already implemented should slow the rate of cash burn in 2018, although the company probably won't reach breakeven until 2019. But the new management team has a credible plan in place to drive continued profitability improvements, which stands in stark contrast to the situation at Sears Holdings.

Meanwhile, Hudson's Bay has a lowly market cap of $1.4 billion. Its real estate alone is worth several times that amount. If Foulkes can get the core business back to profitability by 2019 or 2020 while cashing in on excess real estate, Hudson's Bay stock could soar.